In the first meeting between President Bush and Germany's new Chancellor Angela Merkel, the two leaders criticized Iran's nuclear research program but disagreed over using prison camps such as Guantanamo Bay.

RAY SUAREZ: It was Angela Merkel's first meeting with President Bush since her narrow election last year as Germany's chancellor, and it followed three years of a nearly hostile relationship between Merkel's predecessor, Gerhard Schroeder, and the Bush administration since their very public rift in the run-up to the Iraq War.

To emphasize the contrast, Mr. Bush made a point of meeting Merkel face-to-face for 45 minutes with no aides present. And at a White House press conference, the president said how captivated he was by the one-time physicist who grew up in communist East Germany.

PRESIDENT GEORGE W. BUSH: There's something uplifting to talk to somebody who knows the difference between, you know, just talking about tyranny and living in freedom and actually done it. And so, we're going to have a very good relationship, and that's important for our respective people.

RAY SUAREZ: But political differences remain, including what to do about the U.S. prison camp at Guantanamo Bay, Cuba.

Today, President Bush rejected Merkel's suggestion to shut it down.

PRESIDENT GEORGE W. BUSH: Guantanamo is a necessary part of protecting the American people. And so long as the war on terror goes on, and so long as there's a threat, we will inevitably need to hold people that would do ourselves harm in a system that -- in which people will be treated humanely, and in which ultimately there's going to be an end, which is a legal system.

CHANCELLOR ANGELA MERKEL: I completely share your assessment as regards, the nature and dimension of this threat, and that the Federal Republic of Germany, just as other European countries, need to come up with a convincing proposal as to how we ought to deal with detainees, for example, who do not feel bound by any law, and how do we deal with people who come from countries where such structures don't exist.

RAY SUAREZ: The leaders also criticized Iran's decision to resume nuclear research, but the president emphasized he would rely on diplomacy and consultation among allies to keep Iran from developing nuclear weapons.

RAY SUAREZ: For more, we go to: Eberhard Sandschneider, director of the Research Institute of the German Council on Foreign Relations, a think tank based in Berlin; and William Drozdiak, president of the American Council on Germany, a nonpartisan group focused on transatlantic relations. A former journalist, he was chief European correspondent and foreign editor for the Washington Post.

RAY SUAREZ: Eberhard Sandschneider, does the very fact of a new chancellor almost automatically put German-American relations on a better footing because of where they have been in recent years.

EBERHARD SANDSCHNEIDER: For the last three years shall the answer has to be yes. Personalities do make a difference in bilateral relations, and since all the difficulty is with Schroeder and Bush between the two, now it is time to think about a new beginning. And Angela Merkel came here just to make this very statement with President Bush and the American public.

RAY SUAREZ: Is there more substance to it Bill Drozdiak than simply a new face, are they also more aligned philosophically?

WILLIAM DROZDIAK: I think so. As the president said, her personal story is quite impressive. She grew up in a dictatorship. And so she has an understanding of freedom that most people in the West do not have.

And I think she wanted to establish this personal rapport with the president in order that she can deliver a tough message when necessary through the voice of a friend. In her call to shut down Guantanamo, she was saying it much in the manner that Tony Blair does, the prime minister of Britain who says repeatedly when he speaks with the president, in order to enhance America's image in the world, which has been badly damaged by the human rights issues, shutting down Guantanamo would be quite helpful.

RAY SUAREZ: So amid this new warmth there are still some remaining tensions that hang over from the past?

WILLIAM DROZDIAK: That's right. I think just the nature of the issues, the reluctance of Europeans, Germans in particular to be dragged into distant conflicts is something that worries the people as well as their leaders.

RAY SUAREZ: Eberhard Sandschneider, the president in his appearances with the new chancellor talked about the war on terror. This is a phrase that Mrs. Merkel never uses. She talks about the fight, the threat of terror. Is this just a translation thing, or is there something very serious embedded in that reluctance to use the phrase "war on terror?"

EBERHARD SANDSCHNEIDER: I would argue it is more than just translation. Wording is important. If you regard the certain problem as a problem you have to react with a war against, it makes a difference in the way you choose your instruments.

And generally speaking, most Europeans, especially Angela Merkel as a representative also of Germany does not use easily the expression "war;" war means military must be involved.

One of the differences is Germany still has an attitude and this is continuing under her leadership to approach issues of fighting terrorism, not by fighting states who harbor terrorists, primarily, but trying to go to the root causes of terrorism, but as a much more indirect way of dealing with the terrorist problem. But that is one of the differences which might continue in our bilateral relations even after this successful first visit of hers to Washington.

RAY SUAREZ: And William Drozdiak a difference that is unlikely to be bridged - this is just a different, EU center of Europe way of looking at this?

WILLIAM DROZDIAK: Well, I think that Europeans dislike the term "soft power," they think of smart power as opposed to the hard power of military force employed often by the United States.

And as Eberhard said, the allies want to see us use an entire range of instruments from diplomatic pressures such as they are now using against Iran to the threat of economic sanctions before the whole gamut of military force -- bombing and strafing is considered against outlaw regimes.

RAY SUAREZ: One of the remaining issues that's been bedeviling both sides in this relationship is Iran and its nuclear ambitions. Where do the two sides stand on this? Eberhard?

EBERHARD SANDSCHNEIDER: I would say we have a huge agreement that we should do everything we can to prevent Iran from going nuclear. It's not the fact that we just end up with another state with nuclear weapons. Proliferation of nuclear capacities to non-state access to terrorists is what primarily the primary danger is.

Now how to deal with a country which is obviously not willing to engage in the international cooperation is a major challenge, both for Germany and both for the U.S. I can't see that our two governments disagree on the fact that this is enormously important a problem to be solved.

There might be differences in the way, again, we approach this problem in terms of what instruments to choose. And I found it very interesting that obviously both agreed without mentioning it to the press here in Washington today -- we should agree that for the time being, it is not necessary to take any option off the table although both insist we want to have a diplomatic solution for this problem.

RAY SUAREZ: But hadn't Germany for a variety of reasons been reluctant to take Iran to the Security Council over nuclear proliferation, and not the least because it is a major trading partner with Iran?

EBERHARD SANDSCHNEIDER: Threat always is an issue. But never forget if you push too hard against a country and their leadership of that kind, you will end up at a dead end sooner than later, probably.

The European ambition has been to keep all options open in order to convince the Iranian leadership, yes, let's come back to the table and let's solve this problem on a negotiation table and not by force or by pressure or by any other means.

RAY SUAREZ: Had Condoleezza Rice in her recent remarks on Iran signaled a different attitude toward the EU trio, for instance. Britain, France and Germany had been the sort of NATO spearhead, western spearhead in trying to negotiate a final settlement. It hadn't come to much. The United States has occasionally been openly skeptical about European abilities in this regard. Now that the chancellor is here, where does that stand?

WILLIAM DROZDIAK: Well, I think this has been one of the big changes in the second term of the Bush administration. Under Condoleezza Rice, the secretary of state, there has been much -- a much greater willingness on the part of the administration to consult more closely with the European allies and indeed in the case of Iran, let them take the diplomatic lead.

I think the lesson of Iraq, one of the diplomatic lessons is that America has a tough time going it alone and that we -- the United States can accomplish much more when it can enlist the help of its Democratic allies in Europe because then we have the moral legitimacy of many democracies behind our cause.

RAY SUAREZ: When members of the past German administration were in Washington, members of the Schroeder cabinet, they would say look, some of this is exaggerated. Things really aren't that bad between the United States and Germany. We're helping out in Afghanistan. We are interested in training Iraqi police forces; don't believe what you read in the papers. Was that really the case?

EBERHARD SANDSCHNEIDER: It was true, believe it or not. But symbolism on that level is important. Everyone was a little bit suspicious still. Well, they do cooperate, and look, Afghanistan. Never forget that Germany is the only country having many soldiers out there in order to solve problems on the ground, in Afghanistan, in Kosovo; there is no other country in the world with more soldiers other than Germany after the United States.

This cooperation has always worked. But still, when it came to climate, when it came to atmospheric elements, they were like do they really get along with each other as well as they could or should. And obviously they didn't. And now with a new person in the office of chancellor of the Federal Republic of Germany it has changed. And obviously this is the day where a new chapter in our bilateral relation on the symbolic level is starting.

RAY SUAREZ: Is this a reminder, Bill Drozdiak that the two sides really need each other in ways that perhaps they don't even talk about?

WILLIAM DROZDIAK: Well, I think what's interesting is that the German-American relationship was really the cornerstone of the Cold War security alliance that was the heart of NATO. And now we see an effort to transform this into a new global agenda.

If you look at the discussion between Germany and America today and indeed what the rest of the European allies, the issues involve everything but Europe. Iran, Afghanistan, Israel, Palestine after Sharon. All of these issues are going to be on the front burner. And that they mean that the alliance has to look much further beyond the European continent to protect their interests.

RAY SUAREZ: Gentlemen, thank you both.